The economy is growing at a "moderate pace," in spite of "strong headwinds" created by federal budget cuts, Bernanke said. He pointed to recent improvement in the housing sector and labor market, but also stressed that "the jobs situation is far from satisfactory."

Against that backdrop, Fed officials remain optimistic that the job market will continue to improve gradually. If the economy lives up to their expectations, Bernanke says the Fed will start to reduce its asset-purchase program -- called quantitative easing, or QE3 -- later this year.

That policy, which launched last September, entails purchasing $85 billion in Treasuries and mortgage-backed securities each month, in an effort to reduce long-term interest rates.

As Bernanke has said previously, the Fed could start to slow QE3 later this year, and end it completely in mid-2014, provided the unemployment rate falls to around 7% and inflation nears 2% over that time frame.

But the plan could change if the economy does not follow that course.

Bernanke even noted that, should the economy weaken, the Fed stands ready to increase QE3 purchases.

"Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase [in] the pace of purchases for a time, to promote a return to maximum employment in a context of price stability," he said.